Subway Passes McDonald's

It's official: the Subway sandwich chain has surpassed McDonald's Corp. (NYSE: MCD - News) as the world's largest restaurant chain, in terms of units.

At the end of last year, Subway had 33,749 restaurants worldwide, compared to McDonald's 32,737. The burger giant disclosed its year-end store count in a Securities and Exchange Commission filing late last month.

The race for global dominance is an important one for an industry that's mostly saturated in the U.S. High unemployment and economic uncertainty have battered the restaurant industry in the U.S., and chains are increasingly looking overseas for growth, particularly in Asia.

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Starbucks Corp. Honda (Nasdaq: SBUX - News) recently said it plans to triple its number of outlets in China, for example. Dunkin' Brands Inc., parent of Dunkin' Donuts and Baskin-Robbins, plans to open thousands of new outlets in China in coming years as well as its first stores in Vietnam in the next 18 months. Subway just opened its 1,000th location in Asia, including its first in Vietnam.

Subway, which opened its first international restaurant in 1984, in Bahrain, expects its number of international restaurants to exceed its domestic ones by 2020, says Don Fertman, Subway's Chief Development Officer. The chain currently has just over 24,000 restaurants in the U.S., where it generated $10.5 billion of its $15.2 billion in revenue last year.

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The closely held company, owned by Doctor's Associates Inc., does not disclose its profits.

McDonald's is still the leader when it comes to sales. The burger chain reported $24 billion in revenue last year. "We remain focused on listening to and serving our customers, and are committed to being better, not just bigger," a McDonald's spokeswoman says.

Subway, which surpassed the number of McDonald's in the U.S. about nine years ago, expects China to eventually become one of its largest markets. The sandwich shop only has 199 restaurants in China now, but expects to have more than 500 by 2015.

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Subway has achieved its rapid growth, in part, by opening outlets in non-traditional locations such as an automobile showroom in California, an appliance store in Brazil, a ferry terminal in Seattle, a riverboat in Germany, a zoo in Taiwan, a Goodwill store in South Carolina, a high school in Detroit and a church in Buffalo, New York.

"We're continually looking at just about any opportunity for someone to buy a sandwich, wherever that might be. The closer we can get to the customer, the better," Mr. Fertman says, explaining that it now has almost 8,000 Subways in unusual locations. "The non-traditional is becoming traditional."

The company has some concerns about the economies of certain international markets, such as Germany and the United Kingdom. The company is trying to develop more affordable offerings in those countries, similar to the $5 foot-long sandwiches that have been successful in the U.S.

"Finding that kind of value proposition in those countries is essential," Mr. Fertman says.